Page 47 - Banking Finance June 2022

ARTICLE

internal control systems and reporting are enhancing cost- traditional usage is low, enhancing financial literacy and,
efficiency. From the supervisors' perspective, it allows for more broadly, familiarity with financial services, is essential
risk-based supervision of vast amounts of data. According to to support financial inclusion, irrespective of access.
one RegTech company, the cost of compliance for one of
their clients went down from £18 million to £0.5 million per The experience with the COVID-19 crisis underscores the
annum by switching to their technology. importance of promoting digital services to the most needy.
Fiscal policy should include investment in digital
Factors that facilitate or impede digital financial infrastructure such as access to electricity, mobile, and
internet coverage, digital ID among others. In some
inclusion:
countries where digital access is higher, the crisis could
Better access to digital infrastructure (measured by the
provide the needed push to accelerate initiatives already in
availability of the internet and mobile phones) is
the pipeline in areas related to building conducive
associated with higher usage of digital payments and
regulatory and institutional frameworks. These efforts should
credit. In fact, we find a monotonic and positive
be complemented by the promotion of consumer and data
relationship at all levels of digital infrastructure.
protection, cybersecurity, interoperability, and financial and
Similarly, increasing the number of mobile money agents
digital literacy.
in the same proportion would also lead to improvements
in digital financial inclusion (although the magnitude
What Are the Risks of Fintech to
would be smaller).
The efficiency of traditional providers also matters. Financial Inclusion?
More inefficient banking systems (with higher overhead Regulators around the globe have begun to assess the
costs to total assets) are associated with more digital fintech-related risks and formulate policies, and these should
financial inclusion. The usage of fintech payment be accelerated during and after the COVID-19 crisis. At the
services is higher where there is already a high usage international level, the Financial Stability Board (FSB) has
of traditional financial services. This could reflect higher concluded that fintech and Big Tech do not yet present
financial literacy, as well as trust in the financial system systemic risks (FSB 2019). At the same time, it is worth
in general. recalling that the push for financial inclusion without proper
regulation contributed to the 2008 global financial crisis. The
Institutions matter, at least for the development of
development of digital lending is already raising concerns
mobile money agents, and the quality of governance is
about predatory lending practices in some countries, which
positively associated with the availability of mobile
could become even more prevalent in the ongoing COVID-
money agents.
19 crisis (Faux 2020).
Finally, a more consumer-friendly environment (i.e.,
higher mobile money regulation index) is, as expected,
For instance, fintech borrowers who are unable to make
associated with greater adoption of mobile money.
loan repayments due to sudden loss of income, might be
On the credit side, the availability of borrower subject to aggressive debt collection practices and high late
information and higher protection of legal rights tend payment/default fees. In Indonesia, the Financial Services
to support the emergence and development of fintech Authority has identified and closed down more than 1,000
credit. Perhaps big data would help in a great way as illegal peer-to-peer lenders recently that were offering
far as credit off take is concerned. prohibited financial services or operating without a proper
license. Therefore, a sound policy approach at both the
The priorities in promoting digital financial inclusion should global and domestic level is crucial. Global cooperation is
depend on country circumstances. For example, for needed to mitigate risks related to the possible emergence
countries where traditional access is low, there is room to of global monopolies such as the Big Techs, regulatory
improve financial inclusion through fintech, irrespective of arbitrage and race to the bottom, cross-border activities,
the level of usage. Conversely, for countries where cybersecurity, and money laundering. At the domestic level,

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